Technical View: Nifty forms Bearish Belt Hold pattern; significant correction seen if it breaks below 11,210

August 02
18:29 2018

Finally bears decisively took charge at Dalal Street on Thursday. The Nifty50 after opening lower extended losses as the day progressed and broke psychological 11,300-mark on account of profit booking.

The index closed sharply lower, forming ‘Bearish Belt Hold’ pattern on the daily candlestick chart. Weak global cues amid renewed trade war concerns dented market sentiment.

A ‘Bearish Belt Hold’ pattern is formed when the opening price becomes the highest point of the trading day (intraday high) and the index declines throughout the trading day making up for the large body. The candle will either have a small or no upper shadow and small lower shadow.

The 50-share NSE Nifty after opening at 11,328.90 which was also an intraday high traded sharply lower to break 11,300 mark and hit an intraday low of 11,234.95.

The index closed 101.50 points lower at 11,244.70, but the broader markets outperformed frontliners with the Nifty Midcap index rising 0.1 percent.

“In line with our projections Nifty50 appears to have kicked in a multi-day corrective and consolidation process as it signed off the day with a Bearish Belt hold formation in which day’s opening price will remain as day’s high,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

However, after Thursday’s correction Nifty50 was found heading towards its critical support placed in the zone of 11,210–11,185 and it is near these critical levels, he said.

According to him, the Nifty50 is expected to face a litmus test as failure to hold on to this support zone may not only intensify the selling pressure going forward but also result in prolonged time wise correction.

Hence, for time being traders will be better off by adopting a neutral stance till some signs of strength are visible, he said, adding momentum on upside may not pick up unless Nifty50 registers a close above 11,350 once again.

India VIX moved up by 0.45 percent at 12.58. Overall lower volatility suggests that bulls are likely to hold the market on declines near to major support zones, experts said.

On option front, maximum Put open interest (OI) was seen at 11,000 followed by 11,200 strike while maximum Call OI was at 11,500 followed by 11,400 strike. Call writing was seen at 11,500 followed by 11,300 while Put unwinding was seen at immediate strike prices.

“Nifty index opened negative and witnessed selling pressure for the most part of the trading session. It finally negated its formation of higher highs – higher lows after nine consecutive trading session and drifted towards 11,235 zones,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.

He said now if it sustains below 11,300 zones then decline could be seen towards 11,171 zones while resistances are shifting at 11,330 and 11,390 zones.

Bank Nifty continued to remain under pressure and formed a Bearish Candle on daily scale.

“It started to form lower highs – lower lows from last two trading sessions and now if it sustains below 27,650 zones then retest of major support could be seen towards 27,165 mark,” Taparia said.

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